Survivors’ Costs Gone Wild, Beverage Tax Edition

Gradgrind is alive and well, as this exchange on soda taxes illustrates:

This discussion between Greg Mankiw and David Leonhardt reads a bit like an economics textbook gone rogue. At issue is whether a soda tax makes sense. David Leonhardt says it does: There’s good evidence that it will reduce obesity, which will reduce health-care costs. Au contraire, says Mankiw: You have to “net out the appropriate budgetary savings from shorter lifespans.” In other words, maybe it’s not worth itra-klein/2010/06/life_matters.html”>, as the obese live shorter lives and so cost the government less.

Ezra Klein goes on to describe how the calculation of survivors’ costs (without offsetting valuation of survival benefits) “disadvantages the quality/value agenda as compared with the cost-control agenda.”

I would add a couple more points to complicate the analysis:

First, Mankiw may be interested in exploring the benefits of the “plus-size” clothing market. As the NYT reports, “The plus-size market increased 1.4 percent while overall women’s apparel declined 0.8 percent in the 12 months leading up to April 2010 versus the same period a year earlier, the most recent figures available, according to NPD Group, a market research firm.” Certainly taxes that discourage the development of this growth industry should be scrutinized carefully.

Second, for team Leonhardt, we might think of the tax as a way of deterring anti-beverage tax ads which have glutted the tri-state airways over the past few months. We could all do with a little less of the rent-seeking featured below:

UPDATE: Here are two very interesting discussions of the underlying issues by Michael Ricciardelli: Soda Costs, Part 1, and Part 2.

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